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Survey: Business Ethics Improved During Recession

A devastated American economy did not translate into an increase in unethical behavior at U.S. companies, according to a new study from the Ethics Resource Center (ERC).

Although the ERC’s 2009 National Business Ethics Surveyreport found that retaliation against employees who reported misconduct has increased slightly since a similar survey two years earlier, most other measures of ethical behavior improved. According to the report:

Overall misconduct at U.S. workplaces is down. Fewer employees said they had witnessed misconduct on the job. This measure fell from 56 percent in 2007 to 49 percent in 2009.

Whistle-blowing has increased. Most workers—63 percent—who observed misconduct said that they reported it. That’s up from 58 percent two years earlier.

Ethical culture appears to be stronger. The ERC’s measures of the strength of the ethical culture in the workplace increased from 53 percent in 2007 to 62 percent in 2009.

Pressure to cut corners has decreased. Overall, employees who perceived pressure to commit an ethics violation—to cut corners, or worse—declined slightly, from 10 percent in 2007 to 8 percent in the latest survey.

Perceived retaliation as a result of a report of misconduct rose, from 12 to 15 percent, over the two years.

However, the ERC report sounds a warning: “The lesson for organizations is that when more settled, prosperous times return, misconduct is likely to creep upward again” as the sense of crisis dissipates.

The pattern of ethics appearing to improve during tough times “has occurred before,” the ERC report notes. From 2000 to 2003, another period of economic stress and corporate scandals—including the failure of Enron and Arthur Andersen and the burst of the dot-com bubble—ethics metrics improved similarly. “A possible explanation is that during hard times, when a company’s well-being or even existence may be on the line and regulators are watching, management talks more about the importance of high standards to see the organization through the crisis,” the report observes. “It may also be that some are less inclined to commit misconduct when management is on high alert.”

--------------------------------------------------------------‘The lesson for organizations is thatwhen more settled, prosperous times return, misconduct is likely to creep upward again.’-----------------------------------------------------------------------------

The survey found that a company’s tactics to combat recession had a major impact on employees’ perceptions of ethics in their workplaces. The more moves the organization made—such as layoffs, pay or benefits cuts, hiring freezes, and altered work schedules—the less positive the ethics observed there. At companies that took no such steps, nearly three-fourths of the workforce reported perceiving a strong or strong-leaning ethical culture. At firms where at least one of these economic steps was taken, only 58 percent of workers perceived a strong ethical culture.

Similarly, employee engagement declined steadily for each such recession-related move made by an organization.

The global financial crisis had a major impact on investors and consumers, who at times demonstrated strong emotional reactions to excesses among Wall Street executives. But among U.S. workers outside of the firms involved in the financial meltdown, the crisis appears to have had less of an impact. More than 70 percent of American workers polled said they believe that their business leaders are transparent about business decisions and their company’s health. Nearly 80 percent of employees said they believe that they work in a company that holds employees accountable for their conduct.

Executive compensation appears to be less of a lightning-rod issue in organizations with a healthy ethical environment than in those that are believed to lack transparency, accountability and what the report calls “a basic sense of fair play.” About 62 percent of employees report that the compensation package for their CEO is appropriate.

Looking at 15 years of survey data, report authors concluded:

We are experiencing an “ethics bubble.” The positive results reflected in the most recent survey “are likely to be temporary. We are beginning to see an important connection between workplace ethics and the larger economic and business cycle: When times are tough, ethics improve.”

Executives who don’t elevate culture to a priority risk long-term business problems. Once the economy gets back on track, the report says, “misconduct is likely to rise—unless a strong ethical culture is in place.”

Many specific forms of misconduct observed by American workers and cited in the 2009 survey are little changed in their frequency from the 2007 survey. The 2009 survey found that “company resource abuse” is the most frequently observed form of misconduct, cited by 23 percent of respondents. Other common behaviors reported in the latest survey:

Abusive behavior, cited by 22 percent.

Lying to employees, 19 percent.

E-mail or Internet abuse, 18 percent.

Conflicts of interest, 18 percent.

Discrimination, 14 percent.

Lying to outside stakeholders, 12 percent.

Employee benefits violations, 11 percent.

Health or safety violations, 11 percent.

Three-fourths of employees who said they reported misconduct in 2009 contacted management—46 percent went to their direct supervisor, while 29 percent went to higher management. Fifteen percent approached another responsible person; 4 percent went to an external source; 3 percent contacted a hotline.

The most common form of retaliation cited by employees who reported misconduct was a supervisor excluding the employee from decisions and work activity. Other forms included colleagues giving the reporting employee “the cold shoulder,” verbal abuse by someone in management and coming close to losing a job.

The results of the latest survey prompted ERC to recommend actions for executives:

Prepare for the return of business as usual. “Take note of the messages you are currently sending to employees as you weather the storm of the recession,” the report suggests. “Measure the ethical culture of your organization. … The more you build a strong ethical culture, the less risk for misconduct your organization will face in the future.”

And the report has suggestions for ethics and compliance professionals:

Emphasize culture and principles. “Metrics that gauge ethical culture lead to better outcomes and help predict trouble spots.”

Encourage the creation of board ethics committees.

Encourage disclosure about corporate ethical culture.

The ERC is a private, nonprofit organization devoted to independent research and the advancement of ethical standards and practices in public and private institutions. It surveyed more than 2,800 workers at small, medium and large companies.

Steve Bates is SHRM’s manager of online editorial content. He can be reached at steve.bates@shrm.org.